Though they claim to offer savings, BOCES do little to control costs in the non-instructional services they provide for school districts, state Comptroller Thomas DiNapoli found. In the four BOCES used as a representative sample, taxpayers ended up paying 56 percent more for the same services that could have been performed by a school district or private vendor. The audit found that BOCES should be able to save money because they bundle services for a large number of districts, but instead they end up spending more.

BOCES promise school districts savings by offering "incentive aid," which uses additional public money to bring down the price for phone or Internet service. The audit found this practice merely shifts the cost from one group of taxpayers to another.

"The availability of BOCES aid does not incentivize BOCES to minimize service costs, or districts to demand less expensive choices," DiNapoli wrote in the audit. "Instead, BOCES aid shifts the burden of BOCES' extra costs from local taxpayers to state taxpayers."

New York's 37 BOCES were established to save school districts money by bundling services, including special education and vocational programs. Over the years they branched into other areas, such as providing information technology services for their districts. Today, the state's BOCES have a budget of more than $2 billion and serve 1.5 million students with more than 200 services.

The audit focused on four BOCES: Onondaga-Cortland-Madison; Hamilton-Fulton-Montgomery; Delaware-Chenango-Madison-Otsego and Oneida-Herkimer-Madison. Statewide, $515 million was spent on non-instructional BOCES services in the 2009-10 school year, the audit period.

In the past few years, as school districts have grappled with state aid reductions, they have cut back on BOCES services, particularly in the area of special education services, which can cost tens of thousands of dollars per child.

Special education is generally the highest area of expenditure, followed by non-instructional services. The audit found that most of the BOCES didn't even perform price comparisons to ensure that they offered competitive pricing for their services.

BOCES officials defended the incentive grant program and question DiNapoli's methodology in a response to the audit. BOCES officials claimed they offered cost-effective services even before the grants were factored in and that districts go elsewhere if they are able to save more money.

"The decision to participate in any service is left to the district," officials from Hamilton-Fulton-Montgomery said in a statement. "That our districts do participate in our programs is a testimony to the cost-effectiveness of what we offer."

This is not the first problem DiNapoli's office has found in the state BOCES. In 2011, auditors found that administrators at the Cayuga-Onondaga BOCES were performing private work during their regular workday. In 2010, DiNapoli found that six BOCES were inappropriately holding $79 million in unauthorized or overfunded reserve funds.

The BOCES were established in 1948 to enable small, rural districts to combine their resources to provide services that would have otherwise been unaffordable. They are funded by the school districts they serve, as well as by the state and federal governments. Initially intended to be temporary, they have grown dramatically since their inception — serving all but nine of the state's more than 700 school districts.

As first reported in the Times Union in 2010, a growing chorus of small telecommunications businesses said they have been forced to cut jobs and even gone out of business though they offer the same services as BOCES for a third of the cost. The BOCES aid system has essentially created an uneven market in which the government is bidding against private businesses, owners of these businesses claimed.

BOCES have increasingly been promoted as a way for school districts to save money by Gov. Andrew Cuomo and the state Education Department. But DiNapoli's audits suggest that the savings might be an illusion and that consolidation is not always to the advantage of the taxpayer, said Devi Momot, president of Twin State, a 54-employee communications company headquartered in Clinton County. She said she has lost nearly 20 percent of her business in the K-12 education market to BOCES services that ended up costing more.

"We're not looking for favoritism; we're looking for a fair opportunity to compete for this business and show our innovation," she said.